On the 30th June 2022 there will be the introduction of a new law under The Leasehold Reform (Ground Rent) Act 2022 which effectively ‘bans’ ground rent of any value on new residential leases in England and Wales. There are a few exemptions which include a delay to the implementation for retirement properties where it will not come into force before 1st April 2023; certain financial products and some business leases.
What is Ground Rent?
If you own a property on a long residential lease (over 21 years) you will usually have to pay rent to the freeholder or landlord of the land upon which your property is built; this rent is known as Ground Rent.
This may be paid in one instalment, half yearly or quarterly and can be fixed or escalating. The lease will specify which and if this is to increase, by how much and how often.
The Leasehold Reform (Ground Rent) Act 2022
In an attempt to free leaseholders of these annual costs whilst the cost of living continues to rise, the Government in their Leasehold Reform (Ground Rent) Act 2022 have limited ground rent limit to a ‘peppercorn rent’.
A ‘peppercorn’ refers back to traditional practice of providing a literal peppercorn which is understood to mean of no financial value. The term ‘a peppercorn ground rent’ is still used today. This will mean that a ground rent of any value can no longer be charged by freeholders.
It is hoped that this move will be seen to create a more level playing field for homebuyers.
This is part of the significant reform proposed to aim to make it easier and cheaper for leaseholders to buy the freehold of their property or extend their lease. Leasehold Minister Lord Stephen Greenhalgh states “This is an important milestone in our work to fix the leasehold system and level up home ownership. Abolishing unreasonable costs will make the dream of home ownership a more affordable reality to the next generation of home buyers.”
It is important to know that this law will not apply retrospectively. It will only apply to leases granted after the law comes into effect. For existing leaseholders the right remains for them to extend their leases following the statutory procedure which will automatically reduce their existing ground rent to a peppercorn.
Breaching of this law will be treated as a civil offence, with financial penalties ranging from £500 to £30,000.
If you want any further details on this matter, or are questioning whether to buy a leasehold property then please do not hesitate to contact us.
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BY LINDSEY FRITH
May 13, 2022
Lindsey is a Solicitor and Partner and Heads the Residential Conveyancing department.